Ten years of continuous ad market growth peaked in 2019 at £25.36bn, but the COVID-19 outbreak will wipe more than £4bn from the total for the current year, according to the latest Advertising Association/WARC Expenditure Report.

Full-year figures in the new Advertising Association/WARC Expenditure Report show UK adspend rose 6.9% year-on-year to reach £25.36bn in 2019. And while 2020 started promisingly, the downgrading of projections for the rest of the year demonstrate the deep impact that COVID-19 has had on advertising since mid-March, as it has the UK economy as a whole.

Projections prior to the COVID-19 outbreak forecast adspend growth in 2020 of 5.2% to a total of over £26bn. The revised forecast is for advertising expenditure of £21.13bn meaning a year-on-year reduction of 16.7% – or £4.23bn – from 2019. Adspend is expected to return to growth in 2021 with a rise of 13.6%, but absolute levels of investment are not expected to surpass the 2019 total.

Online formats performed strongly during the past year and they are forecast to decline by less than traditional formats during 2020. Search and social media – 45.7% of the UK ad market combined – grew by 17.8% and 24.6% respectively in 2019 but are predicted to fall by 12.1% and 6.3% respectively this year – the first recorded declines in these sectors.

Broadcaster video on demand (VOD) recorded growth of 15.5% in 2019 but, overall, TV saw a decline of 3.5%. Both are expected to be affected by the downturn this year, with TV forecast to see a 19.8% dip in advertiser investment and VOD a 6.3% fall.

The ongoing decline in publisher revenue that was recorded in 2019 is expected to intensify this year, with decreases of 20.5% for national newsbrands, 24.1% for regional newsbrands, and 25.1% for magazine brands. All are then expected to record growth in 2021.

Given the restrictions on population movement and gathering ordered by the Government, the out of home and cinema markets are expected to see large falls in adspend in 2020, with growth projections at -18.7% and -33.6% respectively. However, cinema and digital out of home are forecast to recoup losses fully in 2021 – the only channels to do so.

The second and third quarters will take the biggest hit

Rates of decline range from 27.2% for broadcaster VOD to 52.6% in the out of home market during the second quarter. The forecasts do not anticipate cinemas to open their doors before July, resulting in spend drying up completely.

Overall, the market is expect to contract by 39.1% – or £2.4bn – during the second quarter of 2020, while spend is projected to fall by a further 24.3% in Q3.

“This virus-induced recession is different to previous downturns in that the impact has been both swift and sharp across all media,” said James McDonald, Head of Data Content, WARC.

“The deterioration of advertising trade, we believe, will be focused primarily in the second and third quarters of this year, though the aftershocks are likely to last into the fourth quarter and early 2021.”

He singled out the effects of the lockdown on small and medium sized enterprises for whom digital advertising – paid search especially – is a staple and whose recovery is expected to take some time.

“Media costs have fallen as a direct result of lower demand for inventory and this, paradoxically, comes at a time when consumption and reach has grown markedly across TV, social media and online publications,” McDonald added.

“Research on WARC from multiple sources shows that cutting advertising in a recession directly correlates with a slower recovery, but the practicalities of marketing in the current climate mean sustained investment is simply no longer feasible for a number of large product sectors.”

The UK advertising industry response

The Advertising Association is working with partners across advertising on innovative plans to boost adspend and reactivate growth in the market. One of the actions being called for is a tax credit scheme for advertising and marketing services, with the aim of stimulating investment and encouraging advertisers to continue, or return to, advertising.

Such a plan would also encourage companies that do not currently advertise, typically SMEs, to invest in advertising. It would also act as a stimulus for the wider economy and provide a welcome boost in investment for British commercial media.

The Advertising Association is also calling for other measures to rebuild confidence in the market, for example:

A phased-down extension of the Job Retention Scheme when lockdown ends, to avoid a wave of redundancies by companies with cashflow problems.

Priority to be given to the advertising production sector to allow it to start up again as soon as possible and to ease its transition from lockdown. Production has virtually stopped and by its nature it requires human presence so there will need to be new arrangements around social distancing.

Government to provide support in the credit insurance markets to ensure that cover limits offered to agencies are sufficient to allow all those UK advertisers who want to advertise to do so without constraint in this respect.

Stephen Woodford, Chief Executive, Advertising Association commented “Despite a good 2019 and promising start to 2020, COVID-19 has affected UK advertising as it has all parts of the economy and the falls we are seeing in adspend come as little surprise. The current quarter will be a tremendously tough time for many businesses across our industry. We are acutely conscious of their predicament and working fast with Government and officials, so that they get the best support possible.

The Advertising Association welcomed Monday’s Government announcement on Bounce Back Loans which will help keep small businesses afloat. It would also like to see an extension of the business rates relief to the advertising sector, and relief on commercial rents for tenants.